Peugeot and GM Are Getting Busy

   on January 24 2013 2:02 PM
Employees of French carmaker PSA Peugeot Citroen work on the new engine "EB" assembly line at the company engines factory in Tremery near Metz
Employees of French carmaker PSA Peugeot Citroen work on the new engine "EB" assembly line at the company engines factory in Tremery near Metz, North Eastern France, December 1, 2011. REUTERS

In a press conference on Thursday, PSA Peugeot Citroen announced that it would take the lead in developing the three vehicle platforms that it will share with General Motors (NYSE:GM) under a parts-buying and manufacturing agreement. This agreement is the backbone of a relationship between the two companies that is aimed at curbing spiraling losses in the European auto market.

Substantial economic maladies have plagued the European market for years. The global financial crisis helped catalyze a six-year contraction in the region’s car market, and manufacturers across the board have logged billions in losses. General Motors has lost over $17 billion in the region since 1999. Peugeot lost over a billion in the first half of 2012 alone. Ford (NYSE:F), which has a substantial presence in the European market, lost nearly $2 billion for the year.

The reaction to the collapse of the market has been severe cost cutting, plant closures, and layoffs. Every automaker in the region was forced to reduce its workforce and drive efficiencies. In the case of GM and Peugeot, it meant a mutually-beneficial component-supply agreement that should save the two companies a combined $2 billion over five years. The first joint-venture cars will be rolling off the line shortly after the region’s car market is expected to enter a recovery phase in the middle of the decade.

GM has accepted that it is playing a long game in Europe. Speculation that the company would sell off its Opel division in the region have been squelched by executives reiterating their commitment to the brand. Running from losses now would only mean a more expensive re-entry into the market later, during a recovery.

But GM and Peugeot aren’t the only automakers developing relationships to help weather the storm. Toyota (NYSE:TM), riding on a wave of weakening yen, has signed a deal with BMW to jointly develop fuel-cell systems. Part of the deal has BMW providing Toyota with diesel engines for its European division. Relative to is position as the world’s largest car maker, Toyota has a limited presence in Europe that it would like to grow. This relationship will help expand its footprint.

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